Got into Zoom Communications today. I want to preface this by saying that I do not intend to hold onto this long-term. The company doesn't have a strong moat. However, when applying a 2 year window (max), this stock is undervalued.
They have so much competition. But one thing is for certain: they are a cash cow, and realistically, that isn't drastically changing soon. Around 60% of their income is contractual from enterprises. Their balance sheet is almost flawless. There isn't much to complain about here. FCF yield is around 7-8% usually.
Currently, the market is pricing this as a dying cyclical. The numbers show something completely different. At about $82, you are purchasing around 38-40% of their net tangible assets. The remaining $49.50 is the price you're paying for their software, which is still generating a lot of cash. This is unheard of for a tech company.
2 biggest catalysts:
\- A $1B share repurchase program was recently announced. What I love here is how disciplined they are in this area. During their pandemic highs, investors pressured them to buy back shares. Let's just say that would have been a terrible mistake. They purchase when value is there.
\- If Anthropic goes public this year, Zoom could see a massive spike in GAAP EPS and net income thanks to their private investments (what a great headline that would be). Even if this doesn't happen, and growth hits their 4-4.5% target, the share buyback program alone should do a lot of heavy lifting.
Bonus:
\- Their capex isn't expected to skyrocket with AI. Unlike what we're seeing with other large tech companies spending like drunken sailors, or Meta spending $80B+ to create the Metaverse just to see them shelve it. Lots of their servers are third-party. Their current capex is less than $70M.
..
Things to watch for:
\- Ensuring their capex remains low and ensuring they are not spending massive ammounts on servers.
\- Watch for future net dollar expansion drop
\- Ignore short-term drops in "strategic investments" (just noise)